Vol Remains Elevated After Earnings Dip; Skew Still Points Up

Monster Worldwide, Inc. (MWW) is the parent company of Monster, the global online employment solution. With a presence in approximately 55 countries globally, including key markets in North America, Europe, South America and the Asia-Pacific region, Monster offers online recruiting solutions.

This is a vol note, specifically elevated vol in a company that recently reported earnings and fell hard on the news. Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see the pop off of earnings in late Apr, and more recently, the drop off of earnings on 8-2-2012 (BMO). Here's a quick news snippet surrounding that earnings release:

What: Shares of online employment specialist Monster Worldwide (NYSE: MWW ) were getting fired by investors today, falling as much as 20% in intraday trading after the company announced second-quarter results.

So what: There was very little that was inspiring about Monster's quarter. Revenue for the quarter ending in June fell 12% from last year, while adjusted earnings per share dropped 33% to $0.06. On the bright side, that $0.06 tally matched what analysts were expecting even though revenue fell short.

The company's outlook for the quarter ahead wasn't any more encouraging. For the three months ending in September, Monster's management sees revenue down between 6% and 12% from last year, while non-GAAP EPS is expected to drop from $0.13 to between $0.02 and $0.07. Wall Street had estimated $0.09 for the quarter.

Source: The Motley Fool via Yahoo! Finance; Why Monster Worldwide's Shares Plunged, written by Matt Koppenheffer.

I do note that since the close on 8-2-2012 of $6.10, the stock is up 10% as of this writing (in a week).

Turning to the vol, we can see how elevated the implied got into earnings and then how it essentially stayed unched after the news. That's highly unusual, regardless of the stock reaction. Once news is known, the risk it presents lessens (unknown outcomes tautologically have more uncertainty than known outcomes). It's this elevated vol level that caught my attention in MWW. The vol comps as of this writing are:

IV30™: 84.94%
HV20™: 68.12%
HV180™: 63.12%

So the implied is substantially elevated to the two historical realized vol measures, even after a large earnings move. The 52 wk range in IV30™ for MWW is [36.32%, 91.73%], putting the current level in the 87th percentile (annual).

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

We can see both a monotonic vol increase from the back expiries to the front as well as a bid OTM call skew in Aug and Sep. That upside skew seems to be fairly persistent for MWW as I peruse the last few trading days before the earnings announcement. For those of you with LVP subscriptions, check out the 1 month skew movie -- you'll see what I mean. In English, the options tend to reflect greater upside risk (potential) than downside risk in the front expiries.

Finally, let's turn to the Options Tab for completeness.

Across the top we can see the monthly vols are priced to 87.79%, 83.28% and 69.22% for August , September and December, respectively. The next earnings release for MWW should be in late October (November options). I do find the depressed December vol a bit odd relative to September.

Due to the skew shape differences between the second and third expiries, the call spread vol diffs are quite substantial. For example, the September/December 9 call spread shows a 20 vol point difference. Just to be clear, I'm not saying it's a good trade, I'm literally saying, "Look, a 20 point vol difference."

Disclaimer: This is trade analysis, not a recommendation.